Book Review

With so much information available on the internet sometimes it’s hard to imagine a world before information was all at our fingertips.

We regularly read and review different finance books. Why? You can learn a ton from different finance books especially the ones written by the investing legends.

Who is Peter Lynch?

Peter Lynch is truly an investing legend. There aren’t many top 10 lists of investing legends that don’t include him in the top 10. He is mentioned in John Bogle’s little red book of investing among others.

His claim to fame? He ran the Magellan Fund at Fidelity from 1977 to 1990 and beat the S&P 11 out of 13 years. The average return was 29.2% and was for a time it was the best performing mutual fund in the world. 

If you are reading this and you were born after 1990 that’s great it’s a recent history lesson. Lynch has a net worth in excess of $300 million so you can say he is most certainly a legend.

Core Lessons from Learn to Earn

In the book which spans 263 pages or so Lynch and Rothchild outline the case for investing as well as some interesting history on capitalism. The core at all of it is that you are making choices throughout your life that affect your current and future financial situation.

You Must Make a Choice About How You Spend Money

Peter Lynch is clear in that everyone, regardless of what job you have, has a choice to make. They can buy items for today, such as a nicer car, or they can choose to invest. It is clearly written about the choice you are willing to make when it comes down to the money you make and where you want to be down the road.

Are You Willing to Learn About Companies to Select Winners

In the book they make the case that anyone can learn to read a company’s financial statement. While it doesn’t go into detail about the financial statement the book provides you enough details where you can begin to look at financial statements without all the numbers looking like they are just thrown on the page.

The finance section is’t really the main point. They really discuss that you must make a choice to want to learn about companies before you spend your hard earned dollars. If you aren’t willing to learn he is suggesting that you invest in mutual funds where they make up a group of companies. Lynch aligns with Bogle in that selecting a mutual fund that follows an index such as the S&P 500 with low fees will give you a share of the market returns.

Join an Investing Club or Support Group

We aren’t sure if investing clubs are as common as they were when Lynch and Rothchild were writing this book. They mention joining a club and then you could pool your money together with this group to buy shares in a company.

Today so many brokerages offer the ability to buy fractional shares of companies that one may not need to pool money in a group. The group aspect would be important to getting started and you have a group here at Bridges Twins and many available on social media where you can find like minded folks who want to change their financial future.

Peter Lynch’s View of Looking at the next 10 years and Companies He Picked Right Years Ago

The case is made that when you are buying a company you are buying them for what they are going to do, not what they have done. While past performance provides you some clues it’s really about where the market is going.

In the book Lynch provides cases such as the railroad boom in the United States and how everyone rushed in and many of those companies didn’t make it. If that sounds oddly familiar to the Internet boom and bust of the early 2000’s it should as it nearly mirrored the railroad boom and bust.

So Lynch outlines the case that you have to look at a company, the economy, and see how this company is going to handle the future.

One of the many companies Lynch picked correctly was Nike. It may seem strange now that Nike was a risky pick however back in the 80’s and 90’s it was not the powerhouse of a company that it is today.

The book was published in 1995, prior to Amazon and all of the big Internet stocks, and yet Lynch provides a list of companies he sees as doing well over the next decade plus that have provided astronomical returns if you had purchased stocks in these companies.

Please keep in mind it’s tempting to say “Oh I would have picked those” as we have time on our side. When Lynch picked these companies they weren’t nearly the same size as they are today.

A few companies that Lynch outlines as winners. In fact back when Lynch wrote this book the ones below were considered “small” companies and are now large companies.

• Amgen
• Disney
• Home Depot
• Microsoft
• FedEx
• Oracle
• Walmart

These companies have all become core of many portfolio’s now however they were not back then.

Even a legend such as Lynch doesn’t get them all correct which shows you how hard it is. In his list of small companies he has Circuit City and Toys R Us. While those companies are no longer with us if you had owned them for 10 years you still would have made a tidy profit provided you sold. 

Another key lesson in the book is that it’s rare for a company to stay on top forever so you must always review your holdings and see if they are positioned well for the future.

Who should read this book?

For those looking to get started on their investing knowledge this is a solid book. You will discover that while the names change the strategies to select winners do not. In every stage you must be diligent in the companies you select to invest in and look at not just what they have done recently but what they will do in the next 10 years plus.

Have you read this book? Share with us your thoughts.

Looking for more investing knowledge? Do a search for “best investing books” on Google and one of the books you are likely to see is The Little Book of Common Sense Investing.

The quote on the cover is from legendary investor Warren Buffet. The author, John C Bogle, is an investing legend himself.

Just because someone is a legendary investor doesn’t make them a great author. In Bogle’s case this book is amazing. 

In our book review series our goal is to give you highlights of the book. We will provide you with a little bit about the author, lessons from the book as well as reasons to read it if you so choose.

Who is John C Bogle?

John C Bogle invented the Index Mutual Fund. He set out to create a way for investors to get their fair share of market returns.

He founded Vanguard in 1974. It is the largest issuer of mutual funds in the world and the second largest issuer of ETF’s according to investopedia. They are continually focused on delivering low cost mutual funds. Many of their mutual funds charge 94% less than the rest of the industry and some are the lowest in the industry.

The company he built and led from 1974 to 1996 was built on putting investors first. It is a company that is owned by the investors. Along the way he also wrote 10+ books and has been praised by such investing legends as Warren Buffet for his strategies.

Core Lessons from The Little Book of Common Sense Investing

This book, while it has Little in the title, packs a ton of information. Mr. Bogle lays out the case how investors are not getting their fair share of the market. He outlines how costs need to be watched. Bogle details how the majority will not beat the market so it’s better to get your maximum share of the market gains. 

Let’s dig deeper into a few core lessons from the book.

Costs Matter…More Than Many Investors Care to Admit

Costs are how mutual fund companies make money. It affects the investors return. Bogle is clear in that he believes investors should look after themselves. 

Bogle uses the example for both active and passive index funds. Active funds are where a manager tries to beat the market. Passive funds follow the market with little manager involvement.

Comparing passive or index funds where one fund charges .03% and the other charges .44% is a .41% difference in favor of the mutual fund company. While this may seem like a small amount of money it adds up over time. Bogle has charts, graphs, and data to show that the smart investor is giving up money for no reason.

You will learn to look at what your mutual fund company is charging you and to make sure that you know what you are paying and why.

Reversion to the Mean…Understanding this is Key to Fund Selection

This was a new concept that we hadn’t learned before. It’s always nice to learn something new. Reversion to the mean is the theory, which Bogle proves in the book, that mutual funds will eventually go back toward the mean.  In this case the mean is the average of the S&P 500 average as a whole.

Trying to outsmart the market is difficult. As Bogle points out very few have done it for a consistent period of time. Even the legendary Warren Buffet, often quoted in the book, has said after his passing he wants the majority of his wife’s estate put in an index fund.

Simply put many managers are beneficiaries of good timing, luck, and the cost for their services don’t pay out in the long term.

Taxes Matter & They Need to Be Minimized

I don’t think I have ever heard anyone seriously state “I want to pay more taxes!”. Bogle is quick to point out that actively managed funds, as a result of strategy, can increase the taxes owed to an investor. As a result this needs to be calculated prior to making an investment decision.

Start Early, Be Consistent, & Don’t Stop

It’s often been said that retiring with a large nest egg is simple, however not easy. Bogle makes the case that the best investors should start early and consistently invest. Selecting a low cost market index fund and a low cost bond fund is a simple yet proven strategy.

Don’t Buy the Mutual Fund Industry Hype

Bogle is very practical. He outlines a fund created in the .com hype of 2000 that was created by Merrill Lynch. It raised just over $1.1 billion dollars. Unfortunately less than two year later investors had lost 71.6% of their money.

History can repeat itself if you fail to study. As Bogle points out, an investor who had kept their money in a S&P Index fund would not have suffered the same fate. 

Who should read this book?

This book is a great read for the investor who isn’t sure if mutual funds should be a part of their portfolio. If you were on the fence of whether you should invest in mutual funds this book will have you chanting…low fees…low fees…low fees. 

You may also come away from reading this book that a S&P Index Fund or a Total market fund should be the core of your portfolio. It’s something we believe here at Bridges Twins and we hope you will adopt it as well. Your future self will thank you.